"Arafat is our interlocutor, as EU leaders said at the Barcelona summit on March 16. He remains our interlocutor and the legitimate authority," Solana's spokeswoman Cristina Gallach told Reuters.

She said the EU considered that Israel had a legitimate right to fight terrorism, but "military means are not going to solve the problem of terrorism."

"We welcome very much the Arab League conclusions as an opportunity for peace," Gallach said.

In Moscow, Foreign Minister Igor Ivanov told a news conference Israel's attack on Arafat's compound "isn't the way that could help find a political solution."

Ivanov said that the solution "must be searched for through dialogue, including with Palestinian leader Yasser Arafat."

Ivanov said that Russia was in consultations with the United States, EU nations and others to stop the escalation of violence.

But Vladimir Lukin, deputy speaker of the Russian parliament's lower house, said that the Israeli attack on Arafat's compound came as a justified response to the latest series of Palestinian terror attacks that killed 27 Israeli civilians in three days.

"The latest horrible crime of the Palestinians makes the harsh actions of Israel largely justified to impartial observers," Lukin said, according to the Interfax news agency.

"Now it is not clear who can sit down to the negotiating table on the Palestinian side because Yasser Arafat has demonstrated his impotence and no other negotiators are visible," he said.

Lukin, who served as Russia's ambassador to the United States in the early 1990s, said the latest round of violence has highlighted Washington's inability to find a solution to the crisis as the chief sponsor of the Mideast peace process.

Solution "must be reached through dialogue" says Ivanov

"Primarily, it is a political and diplomatic flop for the United States, because Americans with their inherent confidence in their ability to resolve everything assumed the lion's share of responsibility for the settlement of the conflict," Lukin said.

Russia is an official co-sponsor of the Mideast peace process launched in 1991 but has played a far smaller role than the United States. It has built friendly ties with Israel but largely lost its clout with the Palestinians, whom it used to arm against Israel during the Soviet times.

Meanwhile, EU diplomats said that in talks brokered by U.S. envoy Anthony Zinni, the two sides had only been one sentence away from a cease-fire deal on Wednesday before the passover suicide bombing at a hotel in Netanya which killed at least 21.

The diplomats told Reuters that the Palestinians had demanded that the cease-fire declaration refer explicitly to a report drafted last year by former U.S. senator George Mitchell setting out steps for a return to peace negotiations.

The Israelis refused any explicit reference to political negotiations and wanted the declaration to focus solely on security issues, they said.

The EU's Gallach said Solana had spoken to Zinni during the night and the U.S. envoy was intending to stay in the region and continue to work for a cease-fire.

EU foreign ministers were also in contact with each other to monitor the deteriorating situation, diplomats said.